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ASX admits 'once bitten twice shy' after director link to US scandal

The chairman of the Australian Securities Exchange has admitted that the decision to allow two directors to go into business together while keeping their positions on the ASX board was not the best one.

The chairman of the Australian Securities Exchange has admitted that the decision to allow two directors to go into business together while keeping their positions on the ASX board was not the best one.

Rick Holliday-Smith told shareholders the board would learn from the experience, describing it as a case of "once bitten twice shy".

"The bar will get high and we'll be very careful," he said at the annual meeting in Sydney.

Two ASX directors voluntarily resigned last week after their US-based hedge fund Manikay Partners became caught up in a share trading scandal in the US.

Russell Aboud and Shane Finemore resigned from the ASX board after their hedge fund was fined $US2.6 million ($2.75 million) by the US Securities and Exchange Commission. It was one of 23 firms to be snared in an investigation of illegal short-selling practices in the US.

Mr Finemore is managing partner of Manikay, while Mr Aboud is its chairman.

Mr Holliday-Smith told shareholders that when the men went into business together it seemed "the sensible thing to do" to keep them on the board.

One reason for doing so was because one of them was based in New York and it would have been good to have someone in that city "that we knew and trusted" while global markets were undergoing such big changes.

Mr Holliday-Smith said the board had considered and understood the risks of having two directors linked to one organisation.

"[But] given the events that unfolded, this created a somewhat complicated situation," he said.

"With hindsight maybe we should have minimised the risk more than we did. The judgment was that it wasn't a risk, but that turned out to be wrong."

Mr Holliday-Smith said he was in no rush to replace the two directors, and that he thought the process could take three to four months. The resignations mean the number of ASX board members has been reduced from nine to seven.

Mr Finemore would have been standing for re-election at the ASX annual meeting on Wednesday.

The events overshadowed the first AGM appearance of the former federal treasury secretary Ken Henry, who was appointed to the ASX board in January. Mr Henry, who was treasury secretary from 2001 to 2011 and who helped the Rudd government roll out its economic stimulus program, told shareholders he believed he had the experience to contribute meaningfully to the board.

"Having worked with successive Australian governments, and with regulators around the world over many years, I believe that my skills and experience [will] provide the ASX with insights and judgment to help the company navigate through what is likely to be an intense period of regulatory and policy development," Mr Henry said.

ASX chief executive Elmer Funke Kupper said he believed confidence would return to market now that the federal election was over.

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